Balancing Rising Benefits Costs with Employee Needs 

Organizations across Canada are facing mounting pressure to balance rising employee expectations with increasingly constrained financial realities. Benefits programs, once viewed primarily as tools for attraction and retention, are now under scrutiny as costs continue to climb at a velocity that outpaces both salary growth and inflation. 

For HR and finance leaders, this environment creates a complex challenge. On one hand, employees continue to rely on benefits as a core part of their total rewards and well-being package. On the other, escalating costs are forcing organizations to reassess how benefits are designed, funded, and governed. What’s clear is that cost management can no longer be reactive. It must become a strategic, data-driven exercise grounded in long-term sustainability rather than short-term fixes. 

Insights drawn from Normandin Beaudry’s proprietary database and MBWL’s most recent Global Benefits Survey, representing more than 200 Canadian organizations, conclude that benefits cost management is now one of the most pressing concerns for employers. 

Across industries, organizations report that managing benefits costs has become a top priority, outpacing even talent attraction and retention. This shift reflects both economic pressures and the growing recognition that benefits programs, if left unchecked, can expose organizations to increased financial pressure. 

In this context, benchmarking and market intelligence play a critical role. Access to reliable data allows employers to understand how their plans compare to peers, identify emerging cost drivers, and make informed decisions grounded in evidence rather than assumptions. 

The pace of cost escalation has accelerated notably in recent years. Median health renewals reached 10% in 2025, with insurer-proposed increases often coming in significantly higher before negotiation. This continues the upward trend observed over the past three years, with increases of 5.3% in 2023 and 8.5% in 2024. 

Dental plans have also experienced notable pressure, driven in part by fee guide increases and post-pandemic utilization patterns. While dental costs remain an important consideration, the most significant cost drivers continue to be health benefits, particularly prescription drugs and disability. 

These developments have direct implications for budgeting, plan design, and governance. Without active management, cost increases compound quickly, putting affordability for both employer and employees and long-term sustainability at risk. 

To manage costs effectively, it is essential to understand what drives them. On average, 75–90% of group insurance premiums are attributable to claims, while the remaining 10–25% reflects insurer fees (including commissions if applicable), administration, and premium taxes. 

Focusing exclusively on claims, however, often leads to missed opportunities. Meaningful savings can also be achieved through: 

• Benchmarking plan design and funding structures 
• Reviewing insurer pricing and contractual terms 
• Conducting periodic market reviews or RFPs 
• Identifying inefficiencies in administration or governance 

When approached strategically, these efforts can free up resources that can be reinvested into employee-focused initiatives or preventative measures that reduce long-term risk. 

Prescription drugs now account for approximately 60–70% of total health plan costs. Increase is primarily being driven by: 

• Increased use of high-cost specialty and biologic drugs 
• Longer treatment durations 
• Aging population and chronic conditions 

Cost pressure is often concentrated among a small number of claimants, meaning that even one high-cost case can significantly impact overall plan cost. Understanding utilization patterns and distinguishing between frequency and severity is essential for effective cost management.

Disability represents the second-largest cost risk for most plans. Aging workforces, rising mental health claims, and musculoskeletal conditions continue to drive claim volume and duration. Beyond direct benefit costs, disability has broader organizational impacts, including productivity loss, replacement labour, and increased strain on teams. Effective disability management is therefore both a financial and operational imperative.

Sustainable cost management requires moving beyond short-term optimization toward a more integrated, long-term approach. Successful organizations balance three core pillars: 

1. Plan design and cost sharing 
2. Financial and governance discipline 
3. Prevention, communication, and employee engagement 

The objective is not to reduce benefits, but to ensure resources are allocated where they create the greatest value for both employees and the organization. 

Thoughtful plan design can help manage costs without undermining affordability, accessibility or equity. This includes: 

• Structuring deductibles, coinsurance, and maximums responsibly 
• Avoiding excessive cost-shifting that creates affordability issues 
• Leveraging drug strategies such as generics, biosimilars, and managed formularies 
• Evaluating fixed-dollar contributions versus percentage-based models 

Organizations should regularly assess whether their funding model—fully insured, ASO, or hybrid—aligns with their size, risk tolerance, and financial objectives. Periodic market checks and renewal negotiations remain essential to ensuring value for money. 

Broad, blanket measures are rarely effective. Leading organizations now focus on: 

• Category-level analysis rather than top 10 drug lists 
• Targeted solutions aligned to therapeutic classes 
• Matching interventions to actual utilization patterns 
• Monitoring emerging developments, including future generic and biosimilar availability 

There are now dozens of tools available in the market; the challenge lies in selecting the right ones. 

Disability management is most effective when treated as an ongoing governance responsibility rather than a reactive claims process. 

Best practices include: 

• Regular performance reviews with insurers 
• Use of KPIs to track duration and outcomes 
• Early intervention and return-to-work programs 
• Collaboration with trusted advisors to support complex cases 

Organizations that involve experienced benefits consultants directly in disability management discussions with insurers often see stronger outcomes, including shorter claim durations and more successful return-to-work efforts. These specialists help challenge assumptions, interpret trends, and ensure cases are managed proactively rather than reactively. 

Communication has become one of the most underutilized cost-management levers. Clear, timely, and targeted communication help employees understand how their plan works, use benefits appropriately, and recognize the value of employer investment. 

Effective strategies include segmented messaging, visual tools, and coordinated campaigns developed in collaboration with insurers and advisors. Employees play a critical role in the sustainability of benefits programs. Transparency and education help build understanding of how claims affect overall costs without discouraging appropriate use. When employees understand the value of their benefits, they are more likely to use them responsibly and appreciate the support provided. 

There is no one-size-fits-all approach to benefits management. But in an environment of sustained cost pressure, inaction is no longer an option. 

Organizations that succeed will be those that approach benefits with discipline, transparency, and intent, balancing financial sustainability with meaningful employee support. By leveraging data, strengthening governance, and communicating effectively, employers can manage rising costs without compromising trust, engagement, or well-being. 

This article was written by:

Daniel Drolet, ASA,
Senior Partner at Normandin Beaudry

Nurez Moorani BA, LLQP,
Consultant, Group Benefits, Normandin Beaudry